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Earnings cap
Prior to A-Day on 6 April 2006, the Finance Act 1989 imposed limits for any post-89 pension scheme members pension arrangement by the earnings cap. The earnings cap limited the taxable earnings of a member that could have been used for pension planning, latterly £105,600 for the 2005/2006 tax year before pension simplification was introduced.

The earnings cap would rise at the retail price index (RPI), which was less than the rise in earnings inflation and resulted in many employees and self-employed eventually exceeding the earnings cap. A pre-89 pension scheme member was not limited to the earnings cap and for an occupational pension scheme could retire on 2/3rds of their final remuneration with no upper limit.


Enhanced annuity
An individual at retirement with a pension fund or a lump sum can buy a pension annuity or purchase life annuity. There are a number of factors relating to health or lifestyle that mean an individual could benefit from an enhanced annuity, resulting in a significant increase in the pension income or income from a lump sum in retirement.

If the individual or their partner are currently ill or have suffered illness in the past or are a smoker or are overweight, then they could benefit from enhanced rates if these conditions have reduced their life expectancy relative to the mortality tables.

For a family with an elderly relative that now requires 24 hour care after suffering an illness, the long term care costs for a nursing home could be partially funded, after any contributions by Local Authority or NHS funding, by an immediate needs annuity.

In addition life companies also consider the lifestyle and location of the annuitant. In particular, it the annuitant has been a manual worker for most of their working life of live in a particular part of the country, an enhanced annuity could be payable. No enhancements of the income could be applied if a With Profits annuity or drawdown option is taken instead of a conventional pension annuity.


Eligibility
For an occupational pension scheme such as a defined benefit final salary or public services scheme there will be particular rules set out by the scheme trustees as to the eligibility of scheme members. This could include a waiting period before joining, indicate the type of employees that can join the scheme, the accrual rate applied, the level of benefits, retirement age and whether it is non contributory or contributory scheme and if so the level of personal contributions.

Large occupational pension schemes could have different retirement benefits for different types of employees such as managerial, white collar or blue collar but legislation has changed to ensure discrimination does not occur. For example, the Sex Discrimination Act 1986 prevents an employer imposing a different retirement age for men and women.

In the case of Barber v GRE (1990) when considering equalisation the European Court of Justice established that the equal-pay-for-equal-work rule Article 119 (now Article 141) of the Treaty of Rome should cover employer pension schemes, enforcing the principle of no discrimination on the grounds of sex. The Barber Judgment applies to all retirement benefits earned after 17 May 1990 and is further endorsed by regulations made in the Pensions Act 1995 for the equal treatment between the sexes.


Employers pension scheme
Where the employees have the opportunity to join an existing company group pension arrangement, this is known as an employers pension scheme. Since the introduction of stakeholder pensions from 6 April 2001, all companies with five or more permanent employees that do not have an existing pension arrangement must have establish either a group stakeholder pensions or group personal pension by the 8 October 2001.

This will continue to apply after this date if a company that is currently exempt from establishing group stakeholder pensions subsequently fails to meet the requirements. If a company does not comply with these requirements, the Occupational Pensions Regulatory Authority (OPRA) can impose fines of up to £50,000. The employer can offer an occupational pension scheme, such as a final salary pension, a small self administrated scheme (SSAS) or a contracted out money purchase scheme (COMPS) as examples of a defined benefit scheme.

These are usually a contributory scheme but occasionally the employer offers a non contributory scheme where the scheme member is not required to make personal contributions, but will still accumulate retirement benefits over time. If the employer has a group personal pension or stakeholder pensions often the employer will match the employees contributions up to a certain percentage.


Endowment policy
The most frequent reason for using a qualifying life assurance policies, such as an endowment policy, is for investment purposes. Investment will be over a specified period of time and purpose, such as school fee planning, or to repay a mortgage where investment and protection is required and the plan must be established on a joint life basis.

Another advantage for choosing a qualifying policy is the tax treatment as if affects the policyholders funds. The underlying assets are taxed at a rate of 20% on savings income, capital gains tax (CGT) and non-savings income are taxed at 22% and dividends are received net.

Qualifying plans can therefore be tax advantageous, although not to the degree of individual savings accounts (ISA), for higher rate taxpayers as there is no tax liability at maturity. Qualification will depend on the following:

If the policyholder wants to encash the policy, this can be achieved by surrendering, or selling the policy on the traded endowment policy (TEP) market. The advantage of the TEP market is that for any with-profits policy, usually a buyer will pay a higher value for the policy than the value received on surrender from the provider. Therefore the parties should seek advice from an independent financial adviser (IFA) before encashing the endowment policy.


Equalisation rules
In terms of an occupational pension scheme the European Court of Justice has ruled that since the Barber Judgment of 17 May 1990 men and women must have equal rights to join employer pensions and that occupational pensions earned from service must be equal for men and women.

The Barber Judgment established the equal-pay-for-equal-work Article 119 (now Article 141) of the Treaty of Rome that if an occupational pension scheme does not contain an equal treatment rule shall be treated as including one. This means that if a scheme member of opposite sex is employed in similar work, or work of equal value, then the benefits to both sexes must be the same, unless the scheme trustees can prove that the inequality is due to a factor that is not sex related.

Regulations made under the Pensions Act 1995 have required occupational pension schemes to treat the sexes equally since January 1996. Also, under section 126 of the Pensions Act 1995 the retirement age for the state basic pension will be equalised to 65 for both men and women.


European Court of Justice
As an institution of the European Union the European Court of Justice (ECJ) has jurisdiction in disputes involving member states, community institutions, businesses and individuals. The ECJ sits in Luxembourg and consists of sixteen judges appointed by the member states by mutual agreement and supported by six advocates general. Since 1989, the court of first instance assists with cases and appeals to the ECJ.

The European Court of Justice has certain primary judicial responsibilities being; the interpretation of the treaties for establishing the European Community; to determine if any act or omission by the European Commission, the Council of the European Union, or any member state constitutes a breach of community law; and to decide on the validity and meaning of community legislation. The ECJ has contributed to determining the European Community as a community governed by the rule of law of which there are two rules; the direct effect of community law in the member states; and the primacy of community law over national law.

For example, in the case of Barber v GRE (1990) concerning the fundamental rights of individuals on equal pay for men and women, the ECJ ruled that article 119 would also apply to an occupational pension scheme and that this would override any existing national rules. The ECJ has also given judgment on environmental protection, the freedom of movement of goods, capital and persons, as well as the freedom to provide services and competition.

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